Appeal from an order of the Surrogate's Court, Erie County (Barbara Howe, S.), entered February 24, 2010.
Matter of Hsbc Bank Usa, N.A.
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
PRESENT: SCUDDER, P.J., SMITH, CENTRA, AND LINDLEY, JJ.
The order determined that petitioner had been negligent and that petitioner is liable for all damages occasioned by its negligence.
It is hereby ORDERED that the order so appealed from is unanimously modified on the law by denying the amended objections and as modified the order is affirmed without costs and the matter is remitted to Surrogate's Court, Erie County, for further proceedings on the petition.
Memorandum: Petitioner, HSBC Bank USA, N.A. (Bank), appeals from an order determining that the Bank, as cotrustee of the revocable trust at issue in this proceeding, was negligent and that the Bank is "liable for all damages occasioned by its negligence." Objectant, Seymour H. Knox, IV, as grantor and beneficiary, created the trust in 1975, shortly after his 21st birthday. Objectant and his father, Seymour Knox, III, were named as individual co-trustees, while the Bank, under its former name, was named as a corporate trustee. The trust provided that, upon the death of Seymour Knox, III, or his resignation as a trustee or his incapacity to act as such, objectant's uncle, Northrup R. Knox, Sr., shall become a successor trustee. Objectant amended the trust in 1990 to make provisions concerning his wife and children as well as successor trustees (hereafter, Amended Trust). Following the death of Seymour Knox, III in May 1996, Northrup R. Knox, Sr. renounced his position as a successor trustee. Although the Amended Trust made provisions for such an event, it is undisputed that, at all times relevant to this appeal, there was no second individual trustee.
In July 2006, the Bank petitioned to resign as trustee and to settle the "Intermediate Account of the proceedings of the Trustees." Attached to the petition was an interim accounting. Objectant raised 20 objections to the accounting and thereafter raised 21 amended objections, challenging numerous investments as well as distributions that he contended should have been listed as investments.
Following a trial on the objections, Surrogate's Court concluded that the Bank had violated the prudent investor standard set forth in EPTL 11-2.3 (b) by failing to comply with its own internal policies and procedures before making the challenged investments or distributions. The Surrogate further determined that the Bank was solely liable for all damages occasioned by the challenged investments and distributions on the ground that objectant, "[b]y his own admission, . . . is not a person who has special investment skills." Although the Surrogate did not specifically address amended objections 18 through 21, she nevertheless determined that all of the objections were "satisfactorily established."
We agree with objectant that the prudent investor standard applies to the revocable trust created by objectant. Pursuant to EPTL 11-1.1 (a) (2), "unless the context or subject matter otherwise requires, . . . the term trust' means any express trust of property created by a will, deed or other instrument, whereby there is imposed upon a trustee the duty to administer property for the benefit of a named or otherwise described income or principal beneficiary, or both." That section then excludes a number of "trusts" from the definition of a trust, such as "trusts for the benefit of creditors, resulting or constructive trusts, . . . [and] voting trusts . . . ." The excluded list of "trusts" does not include revocable trusts because, contrary to the Bank's contention, "[a] power of revocation is consistent with a valid trust which continues unless and until the power is exercised" (Schenectady Trust Co. v Emmons, 261 App Div 154, 157, affd 286 NY 626, rearg denied 286 NY 698; see Matter of Ford, 279 App Div 152, 156-157, affd 304 NY 598). Furthermore, the Prudent Investor Act (EPTL 11-2.3) contains no exclusion for trustees of revocable trusts (see EPTL 11-2.3 [e] ). We thus conclude that there is no merit to the Bank's contention that the prudent investor standard does not apply to revocable trusts.
It is undisputed that the Bank's portfolio manager failed to comply with the internal policies and procedures of the Bank with respect to investing in high-risk private ventures. Contrary to the contention of the Bank, the exclusionary clause found in the Amended Trust does not absolve the Bank of liability. That clause states that, where there is a disagreement between the corporate trustee and the individual trustee or trustees, "the decision of the individual [t]rustees or [t]rustee shall be final and [the] corporate [t]rustee shall have no liability for any action taken in accordance with said decision." Here, however, there was no disagreement.
Contrary to the contention of the objectant, we conclude that, in accordance with the cofiduciary liability rule (see generally Zimmerman v Pokart, 242 AD2d 202, 203), all co-trustees are jointly liable for any damages occasioned by the breach of their joint obligation to the trust. Pursuant to that rule, "[c]ofiduciaries are . . . regarded in law as one entity . . . [and thus one cofiduciary] cannot prevail in a cause of action against [other] cofiduciaries for breach of the same obligation" (id.; see Matter of Goldstick, 177 AD2d 225, 238-239, rearg granted on other grounds 183 AD2d ...